Bush Purges Tax-Cut Foes

In recent days, there have been rumblings in Washington that the Bush administration will push for a new round of tax cuts, especially now that the Republicans will control both houses of Congress. One the White House is said to be looking at is a reduction in the tax on stock dividends.

Roger Ibbotson, a finance professor at Yale University and president of the economic consulting firm Ibbotson Associates, said a reduction in the tax on dividends would be useful because it could encourage more investment in the stock market and prompt more companies to make payouts. He favors taxing dividends, such as capital gains, rather than an outright elimination of the tax.

"If you tax capital gains and dividends differently, then you end up setting up tax arbitrages," said Ibbotson.

Right now, dividends are taxed twice -- once at the corporate level and a second time for individuals.

Indeed, the push for new tax cuts, such as the one on stock dividends, may be speeded by O'Neill's departure because the former Alcoa chief executive was believed to have been resistant to more tax changes.

"O'Neill has been the most opposed to President Bush's tax cut plan," said Gerald Cohen, Merrill Lynch's senior economist, in a research note to customers. "With O'Neill's departure, Bush now likely has full support from his cabinet for his tax cut."

However, liberal economic policy experts fear that the White House will now seek to replace O'Neill with an aggressive tax-cutting proponent. And they say more tax cuts won't necessarily create more jobs.

"Unfortunately, the administration seems to think that a tax cut is the sole solution to every economic problem," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.

In his resignation letter, O'Neill, the first member of Bush's cabinet to resign, said: "It has been a privilege to serve the nation during these challenging times."

His tenure at Treasury was controversial almost from day one after he initially vowed to keep nearly $100 million worth of Alcoa stock while in office. After a firestorm of controversy, he agreed to sell the stock.

While O'Neill is the first cabinet member to resign, he is the second high-profile Bush appointee to announce he was stepping down under fire. Last month, Securities and Exchange Commission Chairman Harvey Pitt announced he would step down after a series of missteps as the nation's top securities regulatory cop.

More than a month after Pitt announced his resignation, the White House still hasn't named a successor. Pitt remains on at the SEC as a lame duck chairman.

Policy experts say the White House cannot afford to take that long in naming a successor to O'Neill.

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